Morning Briefing: American homeowners have $4.7 trillion in tappable equity

American homeowners have $4.7 trillion in tappable equity

The rise in house prices has increased the amount of tappable equity in American homes to $4.7 trillion, Black Knight Financial says.

The mortgage tech firm’s analysis shows that 39.5 million homeowners have equity that they are able to release from their homes; most have interest rates below the current 30-year average and most have credit scores of at least 720.

"December 2016 marked 56 consecutive months of annual home price appreciation," said Black Knight Data & Analytics Executive Vice President Ben Graboske. "That served to not only lift an additional one million formerly underwater homeowners back into positive equity throughout the year, but also increased the amount of tappable equity available to U.S. mortgage holders by an additional $568 billion.”

Graboske added that prepayment speeds have slipped by 40 per cent and as interest rates rise, most of those with tappable equity are opting for home equity lines of credit rather than a first lien refinance.

“Based on past behavior, we may see a decline in first lien cash-out refinance volume, but it's still likely that cash-out refinances – and purchase loans – will drive the lion's share of prepayment activity over the coming year in any case,” he said.

It’s all about interest rates when deciding on a HELOC

Customers deciding whether to arrange a HELOC are most likely to focus on interest rates when making their decision rather than other factors.

A survey by TD bank has found that for 46 per cent of respondents, interest rates rank higher than fees, draw period length and even trust in their lender. Loan amount was the distant-second-placed influencer when arranging a HELOC at 18 per cent.

The findings were part of the mortgage lender’s sentiment survey which also revealed that younger Americans are using HELOCs more than older borrowers with 39 per cent of millennials and 31 per cent of both Gen-X and Baby Boomers opting for the credit lines.

Almost two thirds of millennials want to use a HELOC for renovations with almost half wanting to do so to improve its saleable value.

Despite being prolific users of online services, half of respondents want to meet with a lender compared to 24 per cent choosing to arrange a HELOC online.

Warning for buyers skipping home inspections

Homebuyers in some of America’s hottest markets are taking a risk by skipping home inspections.

With multiple buyers competing for homes, buyers are willing to make an offer without an inspection to jump ahead of others, but sealing the deal and saving a few hundred bucks on the inspection can mean costly surprises later.

“Without a home inspection, you are flying blind. Do you want to get into an airplane where the pilot’s like, ‘You know what, we’ve got 30 steps to check through here but we’re really late, let’s just go.’ Do you feel good about that? I don’t,” CBS senior business analyst Jill Schlesinger told KIRO Radio in Seattle.

While many lenders will not give a buyer a mortgage without an inspection, some will says Schelsinger.

The analyst’s mother is a real estate agent and has the kind of wise words that only a mom could offer: “A house is like a man. There’s more than one for you in the world. You’re going to have to be patient.”